Firms, International Money and Prices. a Survey of the Literature

Abstract

Sluggish price adjustments with respect to exchange rate shocks take essentially two forms. Firstly, prices do not adjust completely to neutralize the effects of nominal exchange rate shocks. Secondiy, price adjustments after exchange rate shocks only take place in discrete time intervals, in other words they are discontinuous. These two features of price adjustments form our definition of international price rigidities. In this paper we shall present a survey of thc empirical and theoretica literature on international price rigidities. We provide the underlying intuition of the theoretical research and present a brief summary of the empirical findings.